Armchair Economist: Economics & Everyday Life

Review by John S. Ryan for Armchair Economist: Economics & Everyday Life
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If you’re remotely interested in economics, you should read this book; it’s a hoot.Not too many books on economics could be described as a “hoot.” But Steven Landsburg, an economics professor at the University of Chicago when he wrote this book (now he’s at the University of Rochester), has a delightfully sharp sense of humor and a gift for clear, logical exposition. He also doesn’t in the least mind naming names when it comes to egregious economic fallacies and the people who commit them: he keeps a “Sound and Fury file” consisting of economic gaffes from the op-ed pages and he devotes a chapter to exposing the culprits.His theme is easily stated, and he states it on the first page: the substance of economic science is that people respond to incentives. “The rest,” he writes in deliberate imitation of Rabbi Hillel, “is commentary.”Landsburg fills the rest of the book with such commentary. His witty and occasionally sarcastic exposition deals neatly with such topics as why recycling paper doesn’t really save trees; why certain statistics are not reliable measures of the “income gap” between rich and poor; why the GNP is not an especially accurate measure of national wealth; why unemployment isn’t necessarily a bad thing; why taxes _are_ a bad thing; why real economists don’t care about what’s “good for the economy” or endorse the pursuit of monetary profit apart from personal happiness; and lots of other points that will no doubt be profoundly irritating to people who just _know_ he _can’t possibly_ be right.For example, Landsburg is delightfully allergic to the claims of the “environmental” movement and recognizes it quite clearly as a strongly moralistic religion. And contrary to the opinions of some not terribly careful readers, he does distinguish firmly between the actual harm caused by pollution and the psychic harm caused by (e.g.) the use of automobiles to people who object in principle to such technology.Interestingly, Landsburg recognizes a problem here for his own cost-benefit approach: if economic efficiency with regard to utilitarian/consequentialist goods and bads were really the whole story, he notes, he should care about _both_ the physical harm and the psychic harm, and yet he doesn’t.Which leads neatly into the other notable feature of this volume: Landsburg is stunningly forthright about the nature — and the limits — of cost-benefit analysis. Unlike some economists who like to pretend such analysis is value-free and involves no commitment to any particular view of morality, Landsburg is clear that cost-benefit analysis is quite unambiguously committed to one particular moral outlook (which he characterizes and describes very neatly). And he is keenly aware of its limitations, though he is not at all confident about what should replace it.The problem, roughly, is this (the following characterization is mine, not his). As Landsburg notes several times, cost-benefit analysis does not regard “theft” as a cost, since it merely transfers existing stuff from one person to another; society is no worse off on net after the theft than before it. (Of course theft entails _further_ costs that _do_ leave society worse off, but that’s not the point here.) Economics, as Landsburg describes it, looks only at _outcomes_ and not at how we got to them. And even at that, it looks only at one abstract feature of such outcomes, namely, how much “good” there is in the aggregate.And yet most of us would say that “society” _is_ somehow worse off after a theft — that there is some sort of “moral cost” involved in the theft itself quite apart from its further consequences, and that it makes a difference whose “good” is rightfully achieved or acquired and whose is not. (Some of us might even say that there is something illegitimate in comparing the thief’s gain to the victim’s loss in the first place.) In ordinary moral discourse, it matters very much how we arrived at a given state of affairs.If so, then economic science has two choices (this is still my opinion, not his). (1) It can throw those “moral costs” into the mix and deal with “rights and wrongs” in the same way it deals with “goods and bads.” In that case, the total “good” will take account of the number and quality of right acts vs. wrong acts. (2) It can ignore those “moral costs” and continue as before.In either case, economic science _as Landsburg presents it_ is simply insufficient as a guide to policy decisions. (Landsburg tends to acknowledge this, maintaining only that cost-benefit analysis is an important _part_ of whatever it is we need to make policy decisions.) And it is certainly not — as Landsburg also recognizes in a wonderfully forthright chapter — sufficient as a guide to personal conduct.So this volume gets five stars even though Landsburg doesn’t have much to say about what should supplement cost-benefit analysis. It’s a terrific introduction to economic thinking genreally, and it’s also a clear and frank recognition of the limitations of such thinking at least as practiced by many mainstream economists.

Review by James J. Lippard for Armchair Economist: Economics & Everyday Life
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Landsburg’s book is entertaining and often witty, and written in a conversational, easy-to-read style. The book is very good at presenting often unintuitive and novel (to the non-economist) ways of looking at things. This is an invaluable book for pointing out common fallacies in arguments about deficits, inflation, unemployment, and other major political issues. At the same time, however, I can’t help but think that Landsburg occasional misses significant relevant issues, most glaringly in the final chapter on environmentalism. For example, Landsburg describes a case where Jack wants a woodland at the expense of Jill’s parking space and vice versa, and argues that the desires are exactly symmetrical. While environmentalists claim that the wilderness should take precedence “because a decision to pave is ‘irrevocable’”, Landsburg says “a decision _not_ to pave is _equally_ irrevocable” because “Unless we pave today, my opportunity to park tomorrow is lost as irretrievably as tomorrow itself will be lost” (p. 224). While this is correct, this misses the environmentalist’s point that it is much easier to convert woodland to parking lot than to do the reverse. The environmentalist fears taking actions that are irrevocable in the sense that they cannot be undone in the future. Landsburg’s perspective throughout the book seems to me to ignore the possibility of actions taken which may have consequences which may adversely effect the very existence of mankind (or economic institutions).

Another example in the same chapter is when he suggests that the best way for environmentalists to support the existence of cattle is to eat beef: “If you want ranchers to keep a lot of cattle, you should eat a lot of beef” (p. 225). This presumes that environmentalists care about the number of cattle in existence, irrespective of their living conditions. Would Landsburg have told abolitionists during the Civil War to buy more cotton as a way of improving the plight of slaves?

Yet a third example in the same chapter is about preservation of the Amazon rain forest, because a new species of monkey was discovered there in October 1992. Landsburg writes that this gives him reason _not_ to preserve the rain forest, since he “lived a long time without knowing about this monkey and never missed it” (p. 226). Would he make the same argument if it was a tribe of people whose existence depended on the rain forest rather than a species of monkey? If not, then he’s missing the point of those who argue that animals (or the environment) have inherent value. It is clear from his writing that he disagrees, yet his own position does assign inherent value to the interests of people and so is not neutral. He seems to admit at the end of this chapter–in the letter he wrote to his child’s teacher–that his view on environmentalism amounts to a religious view that is not subject to discussion (just as he thinks environmentalism itself amounts to a religion being inappropriately taught to his child).

Despite my complaints, I found the book as a whole to be entertaining and informative, and would recommend it along with David Friedman’s _Law’s Order_ (I haven’t read Friedman’s _Hidden Order_) for insight into economic analysis of issues of the day.

Review by Derek Jensen for Armchair Economist: Economics & Everyday Life
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Landsburg apparently sets out to explain real-world, everyday economics phenomena (the subititle is “Economics & Everyday Life” and the cover has every-day examples) but proceeds to merely use real-world, every-day examples to show that economics is inscrutable and political. He fails to actually reach any conclusions about most of the scenarios on the cover–or any others, for that matter–and continually concocts loaded scenarios that enable him to reach bizarre conclusions. The worst part about this technique is that it leaves the reader continually baffled–knowing that his conclusions are wrong but not sure why.Landsburg is best when he is talking directly about economics and worst when he applies theories of economics to law, science, and the environment.He concludes that air pollution is great because it makes a city so unlivable that poor people can afford it, ignoring the fact that real-world cities are always more expensive to live in than the (unpolluted) countryside and that cities–polluted or not–always contain lots of poor people and rich people.Landsburg claims that we shouldn’t elect the best candidate for senator because that person’s productivity is better used in private industry. He fails to take his argument to its logical conclusion and have the country run by autistic children. Apparently, he can’t see that the work of a senator also has value and can actually be more beneficial to the economy as a whole than the work of a private businessman.He goes on to claim that the value of proving scientific theory with experimentation is mainly in giving credibility (and higher salary) to the scientist (it’s actually in the economic value being right more often). He claims that there are “high-powered” research firms and “low-powered” research firms so that bad scientists can work at the “low-powered” ones and stay out of the way (high-powered firms are actually for theories with high profit potential, not high correctness potential). This shows that Landsburg thinks that science works like economics: theories don’t have to be proven right before they are implemented.Landsburg’s hatred of environmentalism, which is a recurring theme (he ends the book with a letter attacking his daughter’s kindergarten teacher), is especially peculiar. He seems unaware that the destruction of flora and fauna is a permanent loss of not just value but a resource to the planet and its people. He argues that the value that could be obtained by destroying it is also lost if it is never destroyed; this is true (it’s the definition of “consumption”) but there is a fundamental difference between a non-renewable rainforest and a renewable resource like wheat or cows. The rainforest can even provide us with value (exotic plants and animals, tourism, oxygen) without destroying it, making it a renewable resource. Perhaps Landsburg looks out on the Statue of Liberty and bemoans the waste of all that good scrap metal that could be had.He casually observes that since he never heard of a certain species of monkey, it didn’t have much value. Well, that monkey has never heard of Steven Landsburg, but I’m sure that Landsburg and his family would say that the world is still a better place with him than without him. But the monkey and I am not so sure.

Review by Matthew Tomich for Armchair Economist: Economics & Everyday Life
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Enough has already been said about the perspective on economics that this book gives, and how it can give laypersons a good insight into the thought processes behind economic analysis. This review is in regards to the final chapter, an out-of-place editorial tirade entitled “Why I Am Not An Environmentalist: The Science of Economics Versus the Religion of Ecology.” (This chapter can be taken as an editorial afterthought since, unlike the other twenty-three chapters, it lacks any listed academic sources in the appendix.)It’s possible that this final chapter on the evils of environmentalism is a clever satire not unlike Swift’s “A Modest Proposal” (that the author himself references in chapter 15). Or maybe he’s merely speaking point blank about his own ideas. Regardless, whether Landsburg intends to or not, he writes the perfect final chapter to a survey of economics: he exhibits the limits of the applicability of economic theory.What he either demonstrates or merely fails to take into account is that some things have worth beyond their immediate market value. Forests and other natural resources have consequence outside their economically-quantifiable use for paper or recreation. What Landsburg shows is that economics, which explains behavior though simplified models, falls short at the point where it fails to take into account actions that alter the world that contains the model itself. The ease and comfort (and the world that it takes place in) that economists are attempting to maximize through consumption is put at risk by that consumption itself. Explain the point through models, put a market value on trees, put a market value on oxygen, and use natural resources for their greatest economic potential, but if the ecosystem breaks down, it doesn’t matter what the interest rate or money supply is; life quality will be inextractably decreased for the model world as a whole. If you prefer cleaner air, maybe you can move to a higher priced neighborhood as Landsburg suggests, but unless you’re moving to another planet, there won’t be a piece of real estate that is unaffected from the effects of environmental degredation. The economic model presented in this chapter fails to take this result into account.But it’s not likely that Landsburg’s beliefs are a satire. The letter that he sends to his child’s preschool against their recycling program only mirrors the fanaticism and righteousness that he rallies against when he uses the analogy of an academic curriculum that includes environmentalism being akin to forced religious conversion. One of the most telling points of Landsburg’s ignorance on the subject is that he continually confuses ‘ecology’ (a true science, arguably stronger in its hard scientific analysis and ability to predict outcomes than the social science of economics) with ‘environmentalism’, a social movement. Perhaps Landsburg should best stick to popcorn and avoid showing his ignorance of biology.

Review by Jamie Whyte for Armchair Economist: Economics & Everyday Life
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This may not be the worst book on economics ever written, but it surely ranks among the most narcissitic and self-indulgent. Landsburg explores through 24 short chapters a number of myths, problems and paradoxes that confront the contemporary economist. The problems in the book fall into two general categories. First, Landsburg seems far more interested in proving his own cleverness and superiority than presenting useful discourse. Take this example: “In my experience economists are extraordinary in their openness to alternative preferences, life-styles, and opinions.” One senses that Landsburg could go on at length about the intellectual and characterological virtues of economists. Mercifully, one can fit only so much self-praise in such a brief volume. There are other examples, but let one more suffice: “There is an appalling population of otherwise literate adults who prefer the poetry of Rod McKuen to that of William Butler Yeats.” He follows this observation with a contrived scenario in which McKuen-lovers buy volumes of Yeats for public display so as to conceal their real preference. Now mass culture is certainly fair game for criticism, but Landsburg’s contempt for anyone not a member of the allegedly superior economist class is so pervasive and mean-spritited that it finally is just offensive. He outdoes even himself in one chapter that is nothing more than a puerile diatribe against environmentalism. This arrogance might be tolerable if the text were otherwise virtuous. But failures of substance are legion. Many of the “problems” that he addresses are trite or have trivial solutions. There are numerous examples of inconsistency between chapters and, in at least one case, a hypothetical with analysis that disregards its own assumptions. Finally, some of his commentary is simply jejune, as for example his discussion of air pollution in which obvious externalities are somehow ignored.On the positive side, the book may have some use as a thought-starter; some of the problems posed are thought-provoking. And a pervasive theme — that obvious solutions to economic problems may well be wrong — is certainly correct. The failings here are unfortunate. Economics is a poorly understood science; and that poor understanding has led to misguided social and economic policies. Landsburg had an opportunity to produce a really useful volume here but was diverted by his own attempts at cleverness and self-congratulation. Too bad.